Life insurance is a simple concept: You buy a policy that pays your beneficiary or beneficiaries when you die. In most cases, that means protecting your family's home and lifestyle in case something should happen to you. Basically, you buy life insurance to make sure that everybody who's important to you is cared for.

Who Needs Life Insurance
  • If a person has dependents, a spouse, children, parents, even charitable organizations who rely on their financial support.
  • If a person provides a service that would have to be provided by (and paid to) somebody else after their death.
  • If you own a business with partners and would need to buy them out in the event of their death (Buy/Sell Agreement)
  • If you are concerned that your family would have to pay estate taxes (estate taxes could be up to 50%!)

When considering life insurance, you should make sure that it provides enough of a benefit to meet your family's or beneficiaries' needs if you (and your salary, service, or payments) aren't there.

Start off with a number in mind of what your family must have in terms of a death benefit: consider payments for mortgage, cost of living, debt, college, and retirement.

Not everyone needs life insurance

  • If a person has no dependents, or if both partners in a relationship make enough money to support them in case one of them died, life insurance is not needed.
  • If there are sufficient funds available to provide for the dependent survivors' long-term needs without depleting the financial resources, there is no need for life insurance.

Next, consider which type of policy will best suit your needs.

Term Life

Term Life Insurance is the most economical form of life insurance.  It provides coverage for a specific period of time (5, 10, 20 or even 30 years).  Generally the premium remains the same during the term.  This means that if you buy a 20 year term policy, the premium will not change during that 20 years.  After the period expires, coverage ends.  Term life insurance will only pay a death benefit if you die within the term.  Here are a few examples of when you should buy Term Life Insurance:

  • When the need for insurance is temporary.  For example mortgage protection or paying children's college tuition in the event you die.  
  • If your budget only allows for the purchase of the lowest cost insurance.  Obviously, in these tough economic times, sometimes you purchase only what you can afford.  I recommend that in these cases you buy from an insurance company that gives you the option to convert to a permanent product when your budget allows. 
       

Permanent, Whole Life or Cash Value Life

Permanent Life insurance is such as Whole or Universal Life  more costly.  However, it has a few significant features that term does not.  The first feature is that the product is permanent.  That means as long as you pay the premium the coverage will remain in-force for your entire life.   Secondly, these types of policies build up "Cash Value".  If you pay consistently over the years, the Cash Value could be quite significant.  Overpayment made in the early years is set aside, and can be accessed by the client. By law, the insured is entitled to a refund of the overpayment when the policy is canceled, hence the term "Cash Value".

Whole Life is used if you have significant assets and you want to be sure that your family is protected no matter when you die.  Here are some uses for whole/universal life insurance:

  • For those who want to be sure that estate taxes are covered
  • If you want to support a surviving partner's retirement funds.
  • If you want to be sure to have enough money to pay for your funeral expenses.